For millions of people in Malaysia, Indonesia, and Turkiye, the shift in the global sukuk market is about to have a significant impact on their lives. As these three nations are poised to become the largest sovereign sukuk issuers, the effects will be felt in local communities, from the creation of new jobs to increased economic activity. The anticipated growth in sukuk issuance is expected to contribute to the development of Islamic finance, which in turn will affect the daily lives of individuals and families in these countries.
The change in the global sukuk market is driven by the anticipated increase in sovereign sukuk issuances by Malaysia, Indonesia, and Turkiye, which will overtake Saudi Arabia as the leading issuers in 2023-2024, according to Moody’s Investors Service. This shift is largely due to the modest reduction in budget deficits in these countries, as well as their increased and ongoing sukuk refinancing needs. As a result, the rating agency expects Malaysia and Indonesia to contribute the most to the growth in sovereign sukuk issuances.
Malaysia’s Fiscal Deficit and Sukuk Issuance
Malaysia’s fiscal deficit is anticipated to decrease to roughly 5% of the gross domestic product (GDP) in 2023-2024 from 6% in 2022, but will remain large enough to support annual sovereign sukuk issuance of US$20bil-US$22bil (RM90.4bil-RM99.5bil) in both years. This is according to a research by Moody’s, which also notes that no significant changes in fiscal policy are anticipated under the incoming administration of Prime Minister Datuk Seri Anwar. The Prime Minister is likely to maintain large fiscal deficits through 2024 in order to support economic recovery, with approximately half of the gross government financing to be satisfied by sukuk issuances.
The Prime Minister unveiled a number of policies in his first Budget 2023, presented on February 24, 2023, to encourage further development of Islamic finance. This move is expected to maintain reasonably high levels of gross sukuk issuance, which will have a positive impact on the development of Islamic finance in Malaysia. As the country continues to support economic recovery, the growth in sukuk issuance is likely to have a ripple effect on local communities, creating new opportunities for individuals and businesses.
Regional Impact and Global Significance
The anticipated growth in sovereign sukuk issuances by Malaysia, Indonesia, and Turkiye will not only have a significant impact on local communities but also contribute to the development of Islamic finance globally. As these countries take the lead in sukuk issuance, they will play a crucial role in shaping the future of Islamic finance, which is expected to continue growing in the coming years. The increased demand for sukuk issuances will also attract more investors to the market, providing a boost to the regional economy.
Looking Ahead
As Malaysia, Indonesia, and Turkiye prepare to take the lead in sovereign sukuk issuances, it is essential to watch how their fiscal policies and economic recovery plans unfold. The next few years will be crucial in determining the success of their strategies, and the impact on local communities and the global Islamic finance market will be closely monitored. With the anticipated growth in sukuk issuance, it will be interesting to see how these countries balance their economic recovery plans with the development of Islamic finance, and how this affects the lives of millions of people in the region. As the sukuk market continues to evolve, one thing is certain – the coming years will be filled with new opportunities and challenges, and it will be essential to stay informed about the latest developments in this rapidly changing market.
